The Taxman and the Tea Party

"The Destruction of Tea at Boston Harbor" by Nathaniel Currier, a lithograph depicting the 1773 Boston Tea Party shows how some colonists disguised themselves as Native Americans. This time, the IRS was trying to unmask political operatives disguised as tea partiers. (Wikicommons)

Friday’s IRS bombshell — the revelation that a Cincinnati field office (and perhaps others) was targeting conservative social welfare groups for special scrutiny — has generated more outrage over the past few days than even the IRS is used to receiving.

The president and members of Congress on both sides of the aisle are falling over themselves to express their shock and indignation over the scandal. President Obama said it was “outrageous.” Rep. Darrell Issa of California told just about anyone who would listen how upset he was, saying in a statement that “the fact that Americans were targeted by the IRS because of their political beliefs is unconscionable.” And House Speaker John Boehner was blunt: “My question is who’s going to jail over this scandal?”

There’s no doubt that what the IRS did was wrong. Officials claim that the targeting wasn’t politically motivated, but a misguided attempt to more efficiently weed out political groups posing as social welfare nonprofits. In 2010, the year some IRS functionaries started searching for key words like “patriot” and “tea party” in tax forms, the number of groups registered as 501(c)4s and campaigning on behalf of candidates started trending, mostly on the Republican side, and were outspending super PACs by a margin of 3-2.

There are distinct advantages to having 501(c)4 status. As Jeffrey Toobin points out at NewYorker.com, thanks to Citizens United, there are no limits on the amount of money you can accept from corporations and private donors, and no limits on what you can spend. You don’t have to pay taxes or disclose donors. The catch is that electioneering cannot be your primary activity. But as Toobin observes, “leading up to the 2012 elections, many conservative organizations, nominally 501(c)(4)s, were all but explicitly political in their work.”

Campaign reformer Fred Wertheimer of Democracy 21 tells The Washington Post‘s Dylan Matthews that the IRS made two mistakes.

“They got it wrong in targeting conservative groups for review based on their names and their identified interests, and they got it wrong in not investigating and acting against groups that in our view were blatantly abusing the tax laws by improperly claiming to be 501(c)(4) groups so they could keep the donors paying for their campaign activities secret from the American people.”

Over the past two years, Wertheimer and others filed more than a dozen complaints with the IRS seeking an investigation of larger social welfare groups founded by political operatives like Karl Rove and former Obama administration aides. They received no response. Instead, the IRS focused on small somewhat insignificant groups in what their inspector general’s report called a confused and mismanaged approach to the problem.

Although many are worried that the backlash will discourage the IRS from pursuing political groups posing as social welfare groups in the future, Sheila Krumholz, the director of Center for Responsive Politics and this week’s guest on Moyers & Company, told The Washington Post‘s Ezra Klein that she thinks the affair is “crystallizing the problem.”

“On the one hand we want the IRS to fulfill its oversight duties. On the other hand there’s so much uncertainty about what the rules are and what they should be. What are those duties? What should they have been doing? They’re saying they made mistakes. They’ll be held to account for those. But the larger problem still is present.”

Sen. Jeff Flake (R-Ariz.) proposed a bill yesterday that would prevent the IRS from targeting tax-exempt organizations based on their names or ideologies. Last year’s DISCLOSE Act is being updated for reintroduction and a new bipartisan bill, The Follow the Money Act, proposed by Senators Wyden (D-Ore.) and Murkowski (R-Alaska) was introduced last month. But ultimately the IRS (or Congress) needs to decide whether these organizations should be allowed to continue engaging in political activities, and if so, produce clear guidelines on the percentage of money that can be used for that purpose. Until that happens, dark money will continue to pollute our political process.

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